The United States (US) has added India to its watch list of countries with potentially questionable foreign exchange policies including undervaluation of currencies. The monitoring list already comprises China, Japan, Korea, Germany and Switzerland.
Referring to high foreign exchange reserves, the US said India, which has a $23 billion trade surplus with the US, "increased its purchases of foreign exchange over the first three quarters of 2017," although the rupee still rose in value.
The US Treasury in its semiannual report has said that the "monitoring list" includes those "major trading partners that merit close attention to their currency practices." It said that net purchases of foreign exchange over 2017 as a whole totalled $56 billion (2.2% of GDP), including activity in the forward market. The intervention has been increased citing strong capital inflows, with foreign direct investment (FDI) of $34 billion and foreign portfolio flows of $26 billion over the first three quarters of the year, according to a report by The Economic Times.
The semiannual report on US trade partners' macroeconomic and forex policies monitors any unfair current practices.
An Indian official aware of the development said, "We do not manipulate our currency".
"This mirrored the pattern of the last few years, in which intervention has typically tracked FDI and institutional portfolio flows. Direct intervention has supported a steady increase in foreign exchange reserve levels," the US said.
Countries remain on the list for two report cycles "to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors."
While no major trading partner was found to be manipulating its currency, five of those on the list meet two of the three criteria, while China is included because "it constitutes a disproportionate share of the overall US trade deficit."
The US has a deficit of $337 billion with China out of a total global trade deficit of $566 billion, according to government data.
The US Treasury report is required by Congress to identify countries that are trying to artificially manage the value of their currency to gain a trade advantage, for example by keeping the exchange rate low to promote cheaper exports.
And while China -- which is at the centre of a brewing trade dispute with Washington -- remained on the watch list, The US Treasury said "the Chinese currency generally moved against the dollar in a direction that should" help reduce China's trade surplus with the United States.
Germany also remained on the watch list, even though it is a part of the European currency union, which means it cannot independently control the exchange rate for the euro.
Even so, the report notes that Germany "has the world's largest current account surplus" and has made "little to no progress in reducing this massive surplus the past three years." The US Treasury called for all the countries on the list to implement economic reforms to address their surpluses.
Edited by Aseem Thapliyal